If the consumer price index (CPI)decreases,
A) the purchasing power of money decreases.
B) a dollar will buy fewer goods and services.
C) real income equals nominal income.
D) there is inflation.
E) there is deflation.

Question

Quizplus · Accepted Answer

If the CPI decreases, it means that the overall level of prices has decreased. This is known as deflation. As a result, a dollar will buy more goods and services, and the purchasing power of money will increase. Real income will also increase since the cost of living has decreased. Therefore, options A, B, C, and D are incorrect.

If the Consumer Price Index (CPI)decreases